Posted by: Dirk | November 7, 2007

Specificity and the Austrian School

There is a new book out by Ricardo Caballero named Specificity and the Economics of Restructuring. He writes (p.27):

There is an extensive literature that extrapolates from the spikes in liquidations described above (and related evidence) to argue that recessions are times of increased reallocations. However, this extrapolation is not warranted in a modern market economy with its inherent heterogeneity.

As it stands and according to Caballero, the nature of job reallocation is procyclical. Since I just gave away a seminar paper on Austrian business cycle theory, this is interesting to note. The Austrians predicted that the cycles were caused by over-investment. During crisis, investment projects had to be abandoned until the economy would be healthy again. This mechanism would surely lead to job creation in the consumer goods and job destruction in the investment sector (while causing temporary unemployment?), and hence to major job reallocations in times of recession. As we now know, this is not happening. Restructuring seems to happen when the economy is doing well.

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Responses

  1. […] some statistics for job creation and destruction. I commented on this before in the context of Caballero’s restructuring and the Austrian School. The emerging patterns are very interesting. Jason Faberman (2004, BLS) remarked: I compare the […]


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